Is Australian Potash's ambitious brine project in WA a goer? Yes, yes, yes, according to the definitive feasibility study released last week.
Australian Potash (ASX code APC) has been on the Punter's watchlist for a while. In the fear and expectation that the market was about to drop severely, he put in a bid for the shares at 8c each, about 20 per cent below the going price.
The Punter still feels a market slide is likely but, after the DFS announcement, the shares rose 10pc and he doesn't expect them back at 8c any time soon.
The feasibility study suggests the company's Lake Wells sulphate of potash project could produce 150,000 tonnes of potash for 30-years, generating pre-tax cash flow of $100m a year and earning, on average, $114m a year before interest, tax, depreciation and amortisation. It would cover its estimated capital cost within five years.
One problem is that the company is very short of cash. A share offer at 8c in March this year was a flop, raising the minimum of $4.2m only because the underwriters had to cough up nearly $2m.
A couple of months ago Australian Potash had $3.25m (including a $1.3m R&D tax handout) in the bank and was expecting to spend $2.58m by the end of September.
Feasibility studies inevitably rely on a series of assumptions or educated guesses about future costs, prices, reliability of resource estimates and so on. In particular, estimating mineral resources in a brine aquifer is relatively new.
Moreover, the company has still to negotiate finance and offtake agreements. At this stage, APC is still firmly in the speculative category.
Nevertheless the Punter, who has always had a wild speculative streak, has bought 20,000 APC at 11c.
With luck, he may be able to reduce his average cost by taking up a generous share offer before too long.
Meanwhile, the current flood of annual results suggest that Australian Vintage (AVG) is doing pretty well, Beston Foods (BFC) has struggled with the drought, and Wellard (WLD) is still hanging in there.
There must have been a deep sigh of relief in the Wellard boardroom when the South America - Turkey live trade resumed.
- The Punter has no financial qualifications and no links to the financial services industry. He owns shares in a number of companies featured in this column.